Contractor rights and obligations: what you need to know

Starting your journey as a freelancer or independent contractor can be exciting but also a bit overwhelming. 

While you have the freedom to choose your clients and projects, you’ll also need to make sure you have a solid contractor agreement in place, get paid on time, pay your taxes, and operate in compliance with local regulations.

This article will explain your rights, responsibilities, and obligations that come with being self-employed, and how you can protect your business and manage client relationships along the way.

Let’s dive in! 

What is an independent contractor?

A contractor is an independent worker or business entity that provides services to clients or businesses based on a contractual agreement. Unlike employees, contractors are not typically part of a company's payroll, do not receive employee benefits such as health insurance or retirement plans, and are often responsible for their taxes, business expenses, and work arrangements.

There are different types of contractors, including:

• Independent contractors: individuals who provide services to a business without becoming its employee.

• Subcontractors: individuals or businesses hired by a primary contractor to complete a portion of a larger project.

• Freelancers: independent workers, typically in creative or technology fields, who offer services to multiple clients on a project basis.

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Understanding contractor rights and obligations

Not having a clear understanding of your rights and obligations as a contractor can lead to misunderstandings that cause big headaches down the road.

Take this for example: some contractors mistakenly assume they can subcontract work without the client’s approval, while some clients think they can end a contract whenever they want, without facing any consequences. Both of these misconceptions can lead to serious legal and financial issues. These points usually depend on what’s mentioned in the contractor's agreement. 

To avoid problems like these, it’s crucial for both you and your client to carefully review the terms of the contract before signing. Make sure everything is clear—who’s responsible for what, deadlines, payment terms, and any other important details.

Another important thing to nail down is your worker classification status (whether you're classified as an employee or independent contractor). Misclassification can lead to major consequences for both you and the client, like fines, penalties, or even deportation if you’re working abroad. Understanding your status and ensuring it's properly reflected in your contract is a must. 

Let’s talk about this in further detail below.

Why contractor agreements matter

When you're working as a contractor, it's essential to fully understand the terms of any contract you sign and make sure your rights are protected. 

Think of contracts as a roadmap that helps both you and your client stay on the same page. A well-written contract lays out all the important details, like the scope of work, your role, payment terms, deadlines, who owns the intellectual property, confidentiality agreements, and more. Having everything in writing gives both you and your client peace of mind, knowing exactly what’s expected from each side.

Written contracts are the best way to avoid confusion and prevent disputes. The specifics of a contract will vary depending on the type of work, the industry, and local laws, but the key is that everyone knows the terms and conditions upfront.

For more complex projects—especially those involving significant money or legal intricacies—it’s smart to bring in a lawyer. An attorney can review the contract, flag any risks, and ensure you’re following all the relevant laws and regulations. Getting legal advice helps both contractors and clients protect their interests and reduces the chances of problems down the road.

If you’re looking for a simpler solution, services like Remote offer pre-built contractor agreements that are legally compliant with local laws. These contracts are vetted by legal experts and can help you and your client feel confident about navigating employment and tax laws wherever you're working.

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Independent contractor versus employee: know the difference

It's important to know the difference between a contractor and a regular employee. These distinctions affect everything from your legal rights to how taxes are handled, and it’s equally important for your clients to understand them too.

The main rule to keep in mind is that independent contractors are hired to deliver result for a short-term project, but they control how the work gets done. Contractors  have a lot of freedom‌ — ‌like setting their hours and working locations and using their own tools or equipment. Essentially, contractors are hired for a specific project or task, but how they complete it is up to them.

Employees, on the other hand, work under the direct control and supervision of the employer. This means the employer can dictate when and how the work is done, as well as provide the necessary tools and resources. Employees are integrated into the company's structure and are expected to follow company rules and policies.

Independent contractors have the potential to make a profit or loss based on their performance and aren’t guaranteed a regular paycheck. Employees, however, receive regular pay (whether it’s a salary or hourly wage) regardless of how well the company is doing.

At the heart of this distinction is the level of control. If the client or employer controls most aspects of how and when the work is done, it’s likely that the worker is classified as an employee. On the flip side, if the worker has more autonomy, they’re probably an independent contractor.

Properly classifying workers ensures that both parties meet their tax obligations and avoid potential legal issues. Misclassifying a worker can lead to fines, disputes, and other penalties for the business.

To stay compliant and avoid risks, both contractors and businesses should take the time to evaluate these factors and seek expert advice if needed. 

Remote’s Contractor Management services can help businesses navigate complex international labor laws and avoid misclassification risks. Our team of employment experts can help global companies make the distinction between employees and contractors, and ensure compliance with local employment laws and tax regulations. 

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What are contractor rights? 

Contractors have several rights that protect their autonomy and define their professional relationships with clients. Some of the key rights include:

Contractual rights 

Contractor rights and obligations are defined by the contract with the client. This document covers important details like deadlines, the scope of work, payment terms, and confidentiality agreements.

Contractors maintain the right to decide how, when, and where they complete their work. Unlike employees, who are subject to company rules and supervision, contractors have the freedom to determine the means and methods of performing their tasks, as long as the work meets the specifications in the contract.

One of the perks of being a contractor is the ability to work for multiple clients at the same time, unless your contract specifically states otherwise.

Right to negotiation

Contractors can negotiate the terms of their engagement, including rates, deadlines, and scope of work. They also have the right to refuse work that goes beyond the original agreement or that poses unreasonable demands.

Right to payment

Contractors are entitled to timely payment for the services rendered.  Contractors typically be paid per project or through a predetermined fee structure, rather than receiving a salary or hourly wage like employees. The contract should specify the payment terms, including the amount, frequency, and mode of payment. If a client fails to pay according to the agreed-upon terms, the contractor may have legal grounds to seek compensation.

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Right to termination under agreed terms

 A contractor has the right to terminate their contract under the terms set forth in the agreement. If the client breaches the contract, such as failing to pay or violating other terms, the contractor may legally end the engagement.

Intellectual property rights

Contractors often create intellectual property (IP) as part of their work. Ownership of IP created during a contract is typically governed by the terms of the agreement. In the absence of a specific clause in the contractor agreement assigning rights, the contractor may retain ownership of the work they produce.

Contractor obligations

While you have rights as a contractor, there are also obligations you need to meet to run your business smoothly and keep your clients happy. Some of the key obligations include:

Delivering quality work. One of your most important obligations is delivering what you’ve promised in the contract. This means meeting deadlines, ensuring quality, and following the project requirements.

Managing taxes. As a contractor, you're responsible for paying your own taxes. This includes setting aside money for income tax and, in some cases, self-employment taxes. It's a good idea to consult with an accountant or use tax software to stay on top of your obligations.

Providing accurate invoices. Invoices are your ticket to getting paid. You need to provide clear and accurate invoices that detail the services you've provided and the agreed-upon payment terms. Include any additional costs that were pre-approved by the client.

Maintaining confidentiality. Many contracts include confidentiality or non-disclosure clauses, meaning you're obligated to protect any sensitive information shared by your client during the project. This could include business strategies, customer data, or product designs.

Following legal requirements. Contractors must adhere to all applicable laws, including licensing, permits, and industry regulations. For example, if you're a contractor in the creative services industry, you must be aware of copyright laws and ensure that you’re work complies with intellectual property regulations.

Communicating clearly with clients. Clear and open communication with your clients is also vital. Address concerns early, and keep a detailed record of all project-related communications. This helps prevent disputes and protects your interests if any disagreements arise.​​

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Contractors must maintain high professional standards, comply with legal obligations, and fulfill the terms of their contracts, while clients should respect the contractor’s autonomy and ensure timely payments. A strong, well-drafted contract is crucial for setting clear expectations and protecting both parties in case of disputes.

As a new freelancer or contractor, understanding your rights, obligations, and responsibilities is key to building a successful business. Protect yourself with solid contracts, manage your finances carefully, and maintain open communication with your clients. By taking this approach, you can enjoy the independence of being your own boss while cultivating strong, professional relationships with your clients.

If you're feeling overwhelmed as you start your freelance journey, Remote's Freelancer Hub can help simplify things. Our easy-to-use platform can help you effortlessly manage clients, craft contracts that comply with local laws, and handle invoicing—all from one convenient platform.

Sign up for free and take control of your business today with Remote